CJRS Update – clarity for company directors

The government has updated the rules of the Coronavirus Job Retention Scheme.

The underlying rules of the scheme are unchanged:

You can claim 80% of the wages of furloughed employees up to a cap of £2,500 per employee per month, plus employer’s NI and the minimum auto-enrolment contribution.

Employees must have been on your PAYE payroll on 28 February. Anyone hired after 28 February is not eligible.

The scheme can be backdated to 1 March for employees who were terminated or made redundant if you re-hire and furlough those employees.

The scheme runs at least until the end of May and may be extended if necessary.

Furloughed employees are not allowed to undertake work for or on behalf of their employer. They are not allowed to provide services or generate revenue.

The furlough period must run for a minimum period of three weeks, and employees may be cycled between furloughed and normal status multiple times – let’s say you have a team of six and only need two staff to continue working. In the first 3 weeks employees 1, 2, 3 and 4 are furloughed; 5 and 6 work. In the second 3 weeks employees 1, 2, 5 and 6 are furloughed; 3 and 4 return to work. In the third 3 weeks employees 3, 4, 5 and 6 are furloughed; 1 and 2 return to work.

You must discuss furlough arrangements with your staff, including making changes to employment contracts. Furloughed employees must be told in writing of the decision to place them on furlough.

The big news is that there is now guidance on whether a company can furlough its directors. Yes, they can. To be fully compliant, the following process must happen:

The board of directors must meet, even if there is only one director a board meeting must take place.

The board must consider whether to furlough any directors.

The decision to furlough must be recorded as a board minute, kept with the company’s records and the director must be notified in writing.

Furloughed directors may carry out particular duties to fulfil their statutory obligations. Under the Companies Act 2006, directors have seven statutory duties:

1. A duty to act within the powers as set out in the company’s Articles of Association

2. A duty to promote the success of the company

3. A duty to exercise independent judgment

4. A duty to exercise reasonable care, skill and diligence

5. A duty to avoid conflicts of interest

6. A duty not to accept benefits from third parties

7. A duty to declare interest in proposed transactions or arrangements

The wording from the government on the CJPS states that a director should “do no more than would reasonably be judged necessary [to fulfil their duties], for instance they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company.”

My interpretation of this (and at this point I must state that I’m not a lawyer) is that directors must not close deals, service deals or deliver other services that generate revenue. They must not do what they normally would have done. They may however, under their duty to promote the success of the company, take actions that will position the company for success after the lockdown ends and whatever form of economic recovery takes place. They may design and develop new products and services, but they must not sell them whilst on furlough. They may create new assets. They may do things that they did not do previously, with a view to promoting the success of the company, but they must not do things that generate revenue.

Similar rules appear to apply to anyone who is a salaried member of an LLP (limited liability partnership).

There has also been clarification on other non-salary payments. Past contractual overtime, fees and commission payments may also be claimed for under CJPS, subject to the overall £2,500 limit. However, any discretionary payments are not eligible to be claimed for.

There is still no detail on the portal that HMRC are developing to enable employers to make claims under CJPS. The government has said that this will be available before the end of April. There is a new statement in the government guidance that HMRC retains the right to retrospectively audit all aspects of and claim under CJPS. With that in mind, be sure that all your paperwork is in order.

There has also been no update as yet on the Self-Employed Income Support Scheme. Given the recent updates on CBILS and CJPS, I expect the government will provide further information on this in due course.